One of the most significant documents in commercial lease property management is the lease.
Did you realize, though, that there are various distinct sorts of leases? If you’re not sure which type of lease is best for your tenants, have a look at the options below.
The Benefits and Drawbacks of Gross Leases
All running expenditures are included in your tenant’s payment with a gross lease, also known as a full service lease. Rent payments are used to pay for things like utilities, upkeep, property taxes, and other costs. With gross leases, tenants don’t have to worry about their rent fluctuating from month to month. It’s a fixed rate, which makes budgeting for rent much easier for tenants. However, they might expect to pay a higher basic rent as a result. They won’t have to worry about adding on the extra expenditures of utilities on a monthly basis.
Even with gross leases, your renters’ rents may fluctuate from time to time. For example, if your tenants consume a lot of electricity, water, or other resources, you can raise rent for a limited time. You might insert a condition in the lease that states that if insurance or tax rates rise, tenants’ rents will rise as well.
The Benefits and Drawbacks of Net Leases
In the field of Commercial lease real estate, the net lease is a popular option. While gross leases have a fairly fixed price, net leases have a lot more flexibility. Tenants prefer them since the base rent is lower. Additional costs such as insurance, upkeep, and property taxes, on the other hand, fluctuate a lot. Commercial Leases come in a variety of shapes and sizes, even within the net lease category.
Lease with a single net lease
Tenants have a fixed base rent with single net leases. In addition, they pay a pro-rata share of the property tax on top of their monthly rent. All utilities used by the tenant must be paid for by the tenant. You, as the landlord, are responsible for the building’s expenses.
NN/Double Net Lease
When your renters sign a double net lease (also known as a NN lease), they agree to pay a fixed base rent and their share of the property tax, just like when they sign a single net lease. The landlord is still responsible for the building’s bills, while the tenant is responsible for their own utilities. A NN lease, on the other hand, requires tenants to pay a portion of the property insurance.
NNN/Triple Net Lease
Triple net leases, often known as NNN leases, are very prevalent. When compared to conventional net leases, the tenant is accountable for a bigger part of the costs under a NNN lease. Tenants are responsible for paying a predetermined base rent, as well as property taxes, insurance, and even building maintenance. Common area maintenance is a term used to describe the third element of building maintenance (CAM). Tenants will not always bear the entire cost of each of these CAM charges, but they will contribute their pro-rata part.
NNN Lease (absolute)
This form of lease is uncommon in commercial lease real estate, although it does exist. On top of their monthly rent payments, a tenant is responsible for virtually all operating expenditures, from building maintenance to property taxes and insurance. This provides the tenant a great deal of control over the structure. This can be beneficial if things are going smoothly. However, if the structure has issues, it can be a big pain.
Leases that have been modified
The terms of a modified lease are identical to those of a gross lease and a net lease. In this sort of lease, the tenant is responsible for the same expenses as in a NNN lease. Rent, as well as property taxes, insurance, and/or building maintenance charges, are all included. Similarly to net leases, the tenant may be responsible for all or part of these expenditures. Tenants are responsible for their own utility and maintenance expenses. The modified lease differs from the standard lease in that the tenant has additional negotiating power. Another advantage of the modified lease is that the renter is not concerned about their rent increasing. Even if the cost of electricity and other items rises, the tenant will not have to pay extra. In this sense, a modified lease is comparable to a gross lease.